Philly, sunset.

Taken at Grace Tavern

How low should taxes go? So low that taxpayers fund corporate profits.

Katrina Trinko reports on Tim Pawlenty's tax proposal:

Among the proposals Pawlenty will push for are cutting the business tax rate to 15 percent from 35 percent and eliminating “special interest handouts, carve-outs, subsidies, and loopholes” in the tax code.

This is standard stuff: Republicans call for lowering the tax rate, but for getting rid of exemptions so that the new tax rate still brings in enough money to ensure proper funding of government operations. Only problem is this: the history of tax reform shows us that the exemptions always, always, always come back into play. Kevin Drum noted this yesterday:

It's always satisfying to take a hard line and demand that the tax code be pure, but human nature just doesn't seem to work that way. Everyone has behavior they believe should be encouraged or discouraged, and sometimes the tax code is the most efficient way of doing it. I'm happy with efforts to scrape barnacles away periodically, but there's no point in pretending that the hull is going to stay clean forever.

Perhaps the certainty of those reappearing exemptions in why business execs are so hot for Pawlenty-style tax-cut-and-reform. The LA Times:

Corporate tax breaks, such as credits for manufacturing in the U.S. and write-offs for equipment purchases, will total about $124 billion this year, according to the Senate Budget Committee.

By taking advantage of those breaks, Boeing, General Electric Co. and 10 other large U.S. corporations were able to avoid paying any taxes on a combined $171 billion in pre-tax U.S. profits from 2008 to 2010, Citizens for Tax Justice said in a report this week.

The companies received a total of $2.5 billion in tax refunds, for a combined effective tax rate of negative 1.5%, the report said.

Taxpayers are paying these companies to do business, in other words. And that's under the current tax structure. I wonder how much more we'd be paying them if the tax rate were cut to 15 percent—and then the exemptions were added back in over a series of years?

That this is happening shows the current tax structure isn't really working all that well, of course. Companies will always seek to minimize their taxes and maximize their profits: of course! But Pawlenty's proposal almost assuredly leads America down the path of funding big-corporation profits at taxpayer expense. If a Democrat did that—say by bailing out car companies—that would be called socialism. When Republicans do it, we call it capitalism.

Paul Ryan, Ayn Rand, and Jesus

Man, oh man, I hate this ad:

From a pure politics perspective, fair play is fair play: Republicans have spent a couple of generations using religion as a cudgel to portray Democrats and liberals as un-Christian and un-American, and it's a strategy they continue to pursue. Goose, gander, etc.

But liberals have mostly resented this line of attack, believing—rightly, I think—that it veers pretty closely to violating the spirit of the Constitution's "no religious test" for candidates for public office. Creating and running this ad means we've decided the principle isn't so important after all—if we can find a way to use religion as a cudgel from a position of strength, we'll do it!

And I can't help but think that weakens the foundation of our ability to defend the rights of religious minorities—Muslims, Jews, atheists, agnostics, and so forth. Maybe it's fair play; I'm not at all sure it's wise.

UPDATE: And politically, it's not that smart either. If Democrats get into a pissing match with Republicans about who is most Christian, Democrats are mostly going to lose.

How low should taxes go? A reply to Bill Voegeli

Last week I posed a question: What level of taxation do conservatives consider appropriate? I'm not sure that I expected much of an answer, but I got one from William Voegeli, whose book "Never Enough: America's Limitless Welfare State" I referenced in posing the question. It was a thoughtful and civil reply, and though Dr. Voegeli and I have philosphical/instinctive differences, I'm grateful he took the time to craft such a response.

In composing my own reply, I wrestle with a few issues. A) Much of Voegeli's reply occupies itself not so much with the question I posed, but with restating the argument from his book--that overreaching advocates of the welfare state in the United States have created and continually seek to create institutions that have grown unsustainably large. I'm not going to spend much time defending liberals in this post (there are several portions of Voegeli's post that seem to deserve their own replies) because I'm still principally concerned with the question of how much conservatives are willing to pay to sustain the government they do envision. B) When he does settle on an answer, it is so broadly reasonable that I (and, I think, most liberals) couldn't quarrel with it. But C) the daylight between Voegeli's conservative response and the actions of America's conservative party is broad enough that a response purely on Voegeli's points seems to omit a lot of real-world ramifications. We're going to have to talk about Paul Ryan here.

Enough throat-clearing. Let's take a look at a couple of key points in Voegeli's response.

My answer is that one way to describe the difference between liberals and conservatives is that liberals want government spending to be the independent variable that determines tax levels, and conservatives want government spending to be the dependent variable determined by taxes.

I think this is an oversimplication. A slightly different way of putting it, I think, would be this: Liberals want taxes to be determined by what they want government to do. Conservatives want taxes to be determined both by what they want government to do and what they want it not to do. (There is, after all, a whole discussion to be had about what the tax level would look like if we had a much, much smaller defense establishment.) That's still an oversimplication--and one that's very charitable to conservatives, as we shall see.

I'm not entirely comfortable with his "liberals want/conservatives want" framework, though, because it is so oversimplified. Put another way: Voegeli's half-right. He and his fellow conservatives want to determine the size of the government and the welfare state, lock it in, and throw away the key. But I don't think it's the case that liberals want to build their utopia now and then figure out how to pay for it. To me, there's plenty of evidence that liberals try to balance goals and resources; the welfare state we expect and hope to build in the United States is not the welfare state we would expect and hope to build in, say, The Solomon Islands. That's a bug to conservatives, I suppose—Voegeli: "One of the reasons to like a growing economy should be that it makes a smaller welfare state possible, rather than because it makes a bigger one possible."—but not to me. A richer society is more capable of providing a safety net; I'm OK with the idea that that increased capability creates something of an increased--though not unlimited--obligation to do so.

But hey: Suppose we were all in agreement about the size of government and the welfare state? That still requires an answer to my question: What level of taxation do conservatives think is the right level of taxation? The conservative answer in our politics always seems to be "a little bit less." Voegeli, bless him, sounds slightly more reasonable.

So, Mathis asks, how high should do (sic) conservatives want our taxes to be? High enough to pay for the things the government needs to do. Which are those? In a democracy, all the things the people feel the government really ought to do. I'm happy to abide by the outcome of the democratic debate over that question, but I think it should be conducted honestly. Honesty requires stipulating that the amount of government we get is no larger than the amount we're willing to pay for, as opposed to the dream-world welfare state we would build if wealth were limitless.

See? I don't think I can argue with a single point in that paragraph. I really can't. We should only build what we can sustain. Let's shut 'er down and go home--after all, not even Paul Krugman thinks we should consign ourselves to a future of ever-larger debts!

So maybe my argument here isn't with Voegeli. Maybe it's with the Republican Party instead. Because it seems to me that over the last generation, welfare-state-loving Democrats have always tried to find the resources to finance their additions to the welfare state--that is, to pay for the things they believed government should do. And Republicans haven't.

Just to cite the two most-obvious examples: Much of the effort in building and passing the Affordable Care Act--known, sneeringly, in some quarters as "ObamaCare"--went into making sure that the act is deficit-neutral during the first 10 years of its life. You can argue that there was some trickiness involved, or that the 10-year-shelf-life of the deficit neutrality is too short a window. Fine. But Democrats actually tried to expand the welfare state without reaching for the national credit card first.

Republicans? Well, back in 2003, A Republican Congress passed the Medicare drug benefit. The law was signed by a Republican president. It reportedly added up to $1.2 trillion to the deficit over a decade. And Republicans couldn't come up with one dime to cover the costs. If there's been a disparity between the willingness to grow the welfare state and the willingness to pay for it, I'd argue that disparity can be found primarily in the actions of America's conservative party.

And we're not even mentioning the unfunded wars of the last decade.

I hear the objections: George W. Bush wasn't a "real" conservative. The Republican Party has learned its lesson. The Tea Party will hold this generation of Republicans accountable.

Enter Paul Ryan. The Republican congressman has introduced one of the more radical budget proposals ever seen. It commands near-unanimous support from the Republican Party in Congress, and to criticize it on the right is conservative apostasy. It is the "rightward pole" in the budget debate.

So what does it actually do? Well it reins in domestic and entitlement spending, reducing the anticipated costs of Medicare, Medicaid, and discretionary spending by more than $2 trillion over the next decade. Presumably, this is what America's conservative party sees as a "right-sized" federal budget—or, at least the closest thing to right-sized that Republicans think entitlement-loving voters will accept.

So. What level of taxation is appropriate to sustain Ryan's budget vision? Well, uh...a little bit less.

It cuts the corporate tax rate to 25 percent. It lowers the marginal tax rate for top incomes from 35 percent to 25 percent. (This at a time when both the rates and the actual taxes collected are really, really low.) And so on. The result? Washington Post columnist Matt Miller gives us the overview:

“The spending spree is over,” Ryan said the other day, after the House passed his blueprint. “We cannot keep spending money we don’t have.” Except that by his own reckoning Ryan is planning to spend $6 trillion we don’t have in the next decade alone.

“We have too many people worried about the next election and not worried about the next generation,” Ryan added. So Ryan is expressing his concern by adding at least $14 trillion to the debt between now and when his plan finally balances the budget sometime in the 2030s (and only then if a number of the plan’s dubious assumptions come to pass).

In other words, America's conservative party has set out its plan for balancing government goals and resources, and it still can't bring itself to pay the bill.* But it can cut taxes. It can always cut taxes.

*President Obama's budget proposal doesn't do any better over the long term, admittedly. Tee up on that if you like. But my purpose here is to determine how conservatives are willing to act.

Now, this isn't William Voegeli's fault. I don't know if he supports Paul Ryan's plan or not, and I'm not inclined to hold him rhetorically responsible. (No more than I'm willing to defend LBJ's 40-year-old comments about "reducing boredom" that Voegeli cites in his reply.) But the "conservative" plan supported by the conservative establishment seems to me a betrayal of the core principle that Voegeli espouses, which is that our leaders should honestly stipulate "that the amount of government we get is no larger than the amount we're willing to pay."

Do Democrats want to strengthen the safety net? Sure. But their efforts in the last generation, while imperfect, have sought to balance goals and resources. Republicans haven't even offered that much. Voegeli, in his book, suggests that Democrats and Republicans can come to a grand bargain on financing the welfare state if Democrats agree to limits on the size of that state. It seems to me, though, that if Republicans take his advice they must also agree to some level of financial support for that state—and right now, that goal appears impossible. What's the right level of taxation for Republicans? A little less, always and forever.

On 'Mediscare'

After a surgery-induced vacation, Ben and I return with the Scripps column to debate the "Medicscare" controversy:

Here, in Paul Ryan's own words, is how he plans to reform Medicare: "Give seniors a voucher for private health insurance that grows at a much smaller rate than actual healthcare costs."

What that means is that as health costs grow ever larger over time, elderly Americans will be forced to bear more and more of the price burden. And if they can't afford to do so? They're on their own.

Conservatives love Ryan's proposal, not because it saves Medicare -- it doesn't -- but because it gradually gets the government out of one part of the safety net business. They don't like the safety net! The problem is that most Americans do like having that safety net: A new CNN poll shows 58 percent of the public dislikes Ryan's proposal.

Republicans argue that poll numbers matter less than dollar numbers: Medicare will run out of money over the next decade if reform isn't made. But it's interesting that Ryan's budget proposal also calls for cutting taxes for the wealthy--when effective tax rates for the rich are already at their lowest point in decades.

The GOP had to decide between preserving the safety net or making the rich richer. Is anybody surprised the rich won? Democrats aren't "Mediscaring" voters on the issue -- they're describing Ryan's plans accurately. But they're not covering themselves in glory, either: They haven't offered a plan to shore up Medicare's finances.

Instead, they're counting on the issue to carry the day in 2012.

Republicans want to shrink, even end, the safety net. Democrats want to save it. By opposing Paul Ryan's proposal, Dems are doing necessary work. Unfortunately, it's only half the job that needs to be done.

Liberals must offer their own proposal for Medicare's future.

Ben argues that the "ObamaCare" bill is the Dem vision for saving Medicare, and he's almost right—but the wonkiest liberals believe there's still work to be done.

How low should taxes go?

A few months ago, Ben and I interviewed William Voegeli, author of "Never Enough: America's Limitless Welfare State." As you might guess, Voegeli's thesis is that Democrats will never stop making more demands for more social welfare programs, and that they need to come up with a limiting principle in order to get Republican buy-in to support any kind of welfare state--which, despite conservative rhetoric, has the support of voters.

I thought of Voegeli when reading Bruce Bartlett today:

Federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.

In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.

I've been trying to grasp at this question for some time, but seeing it through the Voegeli lens has helped me frame it properly. It's well-established that in good times and bad, Republicans call for lower taxes. Always. So I guess my question for my conservative friends is this: How low is low enough?

I presume that most of my conservative/Republican friends believe that the state should exist and has some functions to perform. (I'm excluding my anarcho-libertarian friends from the conversation for the moment.) And I guess their first response would be: "The minimum it takes to support those minimal tasks and not a cent more." But that doesn't really tell us anything, and it keeps things sufficiently vague that Republicans can make the same pitch, generation after generation. What I want to know is: According to conservatives, what's an appropriate level of taxation to sustain government without unduly oppressing citizens? Is it lower than 14.8 percent of GDP? If so, how much lower? Can we get a number?

Somebody will provide a number, I hope. But I'm guessing for most Republicans, the answer is always and will ever be: "Just a little lower."

Would mandatory paid sick days hurt Philadelphia businesses? Maybe not

The Philadelphia City Council is considering a bill that would require the city's employers to offer paid sick leave to their employees—a new regulation that seems, perhaps, counterintuitive considering the poor nature of the job market here. But it turns out that the state of Connecticut is considering similar legislation—and the Economic Policy Institute has a memorandum suggesting the requirement wouldn't be so burdensome, and might offer some benefits to employers.

Among the highlights:

• If all employees used all five paid sick days, the average cost to an employer that currently provides no paid sick days to any employees would be 0.40% of sales.

• Among workers who currently have access to five paid sick days, the industry-weighted average number of days taken is 2.41 days; if employees used this average number of paid sick days, the total cost would be 0.19% of sales.

Says EPI: "The data clearly show that the potential cost of providing paid sick days is in fact extremely small relative to the total sales of a firm. In addition, available research shows cost-savings for employers that provide paid sick days, largely resulting from reduced employee turnover."

It would be interesting to see similar research brought to bear on Philadelphia, but I'm guessing the outlook wouldn't be all that different. In any case, if I were running a business, I'm not sure why I'd want to put my employees in the position of coming to work sick—infecting other employees, my customers, and even me. Based on EPI's memo, such burdens appear unnecessary.